Debt Management vs. ​Debt Settlement

There are major differences between Debt Management and Debt Settlement. Debt Settlement can promise to settle your debt for up to 50% less than what is owed, but neglect to disclose the hidden fees and downsides to debt settlement. Below is a break down on the difference between Debt Management and Debt Settlement.

Debt Management

Debt Settlement

Education

Education

Provides on going financial education and support

No education

Payments

Payments

One low monthly payment, based on a personalized financial budget. Payment is distributed among your creditors

Stop all credit payments. Make deposits into a savings account through the debt settlement company for up to 3 years until debts are settled.

Interest Rates & Fees

Interest Rates & Fees

Negotiate with creditors to lock in lower interest rates & fees

No change to interest rate. Late fees will accumulate and be added to your debt

Cancellation

Cancellation​

No penalty to cancel, but you will still owe your creditors the remaining balance at your original interest rate.

Usually a large penalty to cancel from program. Will be responsible to pay remaining balance plus all additional late fees

Accounts that are past due and settled for the less amount will have a large negative impact on your credit score.

Management Fees

​Management Fees

Small regulated state fee

Fees could be as high as 20% of the debt that is settled. Ex: $10,000 debt = $2000 fee

Collection Calls

Collection Calls

Stop collection calls

Collection calls will continue to harass you

Tax Charges

Tax Charges

Should not apply

Required to pay taxes on the savings earned from a debt settlement

Monthly Payments

Monthly Payments

Each payment is distributed among your creditors every month

Creditors could file a lawsuit against you if they are not receiving payment.

Even the best debt settlement companies, can cost you more than enrolling in a debt management program. Here is what you can expect with a debt settlement program: -Negative impact on FICO credit score- high fees-Additional taxes -No financial education

A Debt Management program with a nonprofit like Golden State Debt Management will provide you with the tools and education you need to get out of debt and continue to be debt free. If you would like any assistance on taking control of debt, give our credit counselor a call for a free financial analysis or fill out our contact form and someone will reach out to you